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Many Oil Experts Unconcerned Over China Unocal Bid

Fears about China's grab for oil reserves are at odds with experts' views of how global oil markets work.
Fears about China's grab for oil reserves are at odds with experts' views of how global oil markets work. (By Andrew Wong -- Getty Images)

China is "not a market economy -- that's the real challenge we have here," said Michael R. Wessel, a member of the U.S.-China Economic and Security Review Commission, a group established by Congress. "They see resource acquisition as an integral part of their military plans. We need to look at it on the same basis."

Gal Luft, executive director of the Institute for the Analysis of Global Security, said that to the extent China acquires reserves from countries such as Canada, "It means we will be more dependent on the Middle East and other more unstable areas." As a result, "this deal should be viewed as a red flag."

Some of the ammunition for the opponents has come from an interested party -- in this case, Chevron Corp., which has made a rival $16.5 billion bid for Unocal. In an interview, Peter J. Robertson, Chevron's vice chairman, maintained that U.S. economic interests are at stake mainly because a combined CNOOC-Unocal company would be less able to exploit Unocal's deepwater petroleum reserves than Chevron would, given Chevron's expertise.

In such an enormous world energy market, "a few percentage points [of global production] can really make a difference" to prices, Robertson said. But asked if he thought a Chevron victory over CNOOC would affect production that much, Robertson said no.

The issue may be academic, because the furor over CNOOC's bid could prompt Unocal shareholders to approve the Chevron bid at a meeting scheduled for Aug. 10, well before CNOOC could clear its own bid. Even though Chevron's offer is lower than that of CNOOC, the certainty that Chevron would pass muster in Washington gives the U.S. oil giant an edge.

"In the environment we're in," Robertson noted, "I think Unocal shareholders will say, 'The Chevron deal looks pretty good.' "

But there are dangers in stiff-arming Beijing, especially given China's clout as a purchaser of things such as Boeing airplanes and U.S. Treasury bonds.

"If we were to say no to [CNOOC's bid], it would likely stimulate just the sort of nationalist reaction in China that we should want to discourage," said Richard Haass, president of the Council on Foreign Relations. "We have a national security interest in integrating China into the global economy, and this [permitting the Chinese takeover of Unocal] seems to me one way to do it."

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